Canada's Income Inequality May Be Larger Than Previously Thought: OECD Study

The gap between rich and poor in Canada, and in many developed countries, is wider than previously thought, says a new study from the OECD.

Economists Nicolas Ruiz and Nicolas Woloszko argue in a new working paper that the existing data on income inequality is incomplete because it’s based on household surveys. High-end earners tend to under-report their income in these surveys, they argue.

To fix the problem, the researchers looked at income tax data from the 34 OECD member countries, and then adjusted the data based on these numbers.

“The results point to a significant increase of the level of inequality,” they concluded.

In Canada, it was believed that the top 10 per cent of earners took home nearly three times as much income, on average, as the median earner.

The study’s adjusted numbers indicate that Canada’s top 10 per cent actually take home nearly four times as much as the median earner.

Both Canada and the U.S. have a greater degree of wage inequality than previously estimated, the OECD study shows. But while Canada's wage gap has stabilized, the U.S.'s continues to grow. (Charts: Ruiz/Woloszko)

But the new numbers don’t show any sort of different trend in Canada’s wage inequality. Both the original figures and the new, adjusted numbers show the country experienced a marked increase in inequality in the 1990s, which has now leveled off at the new, higher levels.

Overall, Canada remains where it was among OECD countries — just slightly more unequal than the average.

The question of whether high-earning Canadians are hiding their incomes came into play in last year’s federal election, when then-Liberal Party Leader Justin Trudeau suggested that the small-business tax credit was being used by wealthy Canadians to avoid taxes.

Poland does the most to reduce income inequality, out of 22 countries surveyed.
Number represents percentage change in degree of inequality before and after taxes and government transfers.
Sources: Kevin Drum, Janet Gornick

Number represents percentage change in degree of inequality before and after taxes and government transfers.
Sources: Kevin Drum, Janet Gornick

Number represents percentage change in degree of inequality before and after taxes and government transfers.
Sources: Kevin Drum, Janet Gornick

Number represents percentage change in degree of inequality before and after taxes and government transfers.
Sources: Kevin Drum, Janet Gornick

Number represents percentage change in degree of inequality before and after taxes and government transfers.
Sources: Kevin Drum, Janet Gornick

Number represents percentage change in degree of inequality before and after taxes and government transfers.
Sources: Kevin Drum, Janet Gornick

Number represents percentage change in degree of inequality before and after taxes and government transfers.
Sources: Kevin Drum, Janet Gornick

Number represents percentage change in degree of inequality before and after taxes and government transfers.
Sources: Kevin Drum, Janet Gornick

Number represents percentage change in degree of inequality before and after taxes and government transfers.
Sources: Kevin Drum, Janet Gornick

Number represents percentage change in degree of inequality before and after taxes and government transfers.
Sources: Kevin Drum, Janet Gornick

Number represents percentage change in degree of inequality before and after taxes and government transfers.
Sources: Kevin Drum, Janet Gornick

Number represents percentage change in degree of inequality before and after taxes and government transfers.
Sources: Kevin Drum, Janet Gornick

Number represents percentage change in degree of inequality before and after taxes and government transfers.
Sources: Kevin Drum, Janet Gornick

Number represents percentage change in degree of inequality before and after taxes and government transfers.
Sources: Kevin Drum, Janet Gornick

Number represents percentage change in degree of inequality before and after taxes and government transfers.
Sources: Kevin Drum, Janet Gornick

Number represents percentage change in degree of inequality before and after taxes and government transfers.
Sources: Kevin Drum, Janet Gornick

Number represents percentage change in degree of inequality before and after taxes and government transfers.
Sources: Kevin Drum, Janet Gornick

The U.S. does the least to reduce inequality, of 22 countries surveyed.
Number represents percentage change in degree of inequality before and after taxes and government transfers.
Sources: Kevin Drum, Janet Gornick

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